Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
‘Absolutely Partying’ Until The End Game Arrives
Assuming no US default -- and as discussed in the weekly+, you pretty much have to assume no US default -- traders and investors may soon find themselves confronting a macro-policy conjuncture not unlike that which existed prior to March's banking turmoil.
On the eve of SVB's collapse, the US data looked almost uniformly strong, prompting markets and Fed officials to ratchet terminal rate expectations higher. Two months and a few bank failures later, and markets are pretty sure the Fed's done.
Some other CBs that stopped hiking earlier are restarting (Australia) or thought to be considering it (Canada) as their inflation fails to decline enough.
Interestingly, their banks haven’t shown overt distress. I haven’t reviewed Australian banks lately, but did Canadian banks recently and the comparison to US banks is unflattering for the USA.
ECB and BoE remain on the tightening path.
The Bank of Japan looks closer to raising rates, actively or by ending Kuorada’s YCC regime.
If investors were anticipating a global end to monetary tightening, that assumption might have to be revisited, at least in the G7.
“So, what’s going on? Why haven’t 500bps of rate hikes done more damage?”
Because most everyone refinanced below 3% back in 20-21. So excluding the very poor and those just starting out trying to open new lines of credit, kinda hard to see how 12 months of rate hikes are going to radically change consumer behavior.
If/When the job market collapses, behavior will change
But 36% of American families are renters.
Fair point. I’m curious how spending breaks down between the renters and homeowners, but that’s probably not clear. Student loan deferral is another data point and anecdotally, I know several people who are benefitting from that
I don’t think that’s it, or solely it anyway. As John Liu points out, a fair amount of the population rents. I also think pandemic fallout does make this time different. How much money is being saved by WFH policies (childcare, transportation, etc.)? How much money is being saved by ongoing student loan deferments? I think these amounts are pretty massive within the scope of the US economy and the latter “savings” puts more money directly into the real economy.
For most of the population, I think it basically comes down to jobs – like Eddie Z says. Jobs are abundant and wages rising, so consumer spending is holding on, even if it is getting weaker as inflation pushes some spending from discretionary to non-discretionary.
Uh oh… they said: don’t fight the Fed. But they didn’t go so far as to agree with the Fed. (gulp)
Consumer spending isn’t just “savings” since most Americans have very little, and the jobs those same consumers have don’t come from thin air…
The companies that were supposed to go out of business because they couldn’t borrow apparently haven’t gone under yet. At these rates the tide is out – clearly already crypto’s down the tube and some banks mismanaged duration risks. When zombie companies are unsuccessful with bond offerings and finally go under, (now that they can’t really just dilute equity holders) then the jobs will finally disappear.